Marketing Grain in Low Price Market
(Aug 18, 2017)
By David Bau
Current marketing opportunities for the 2017 crop have been below the average farmer’s breakeven prices. Each year farmers in my marketing groups determine breakeven prices needed to cover their crop input costs and living expenses. The average cash breakeven price is $4.26 for corn and $10.78 for soybeans for southern Minnesota farmers. The average cash corn and soybeans prices for Worthington in 2017 has been $3.23 for corn and $9.07 for soybeans, well below the prices needed to cover costs.
Using 2016 farming results for corn and soybean producers from FINBIN database, the numbers are not good. The average of 1382 corn farmers in Minnesota lost $62.35 per acre for corn, while making $7.88 per acre on soybeans. This compares to a loss of $55.07 per acre for corn in 2015 and income of $8.34 for soybeans. A trend of larger losses was created from 2015 to 2016 even while input costs including rent rates declined and yields increased. The average price for corn sold in 2016 was $3.29 and for soybeans $9.35. This compares to $3.49 for corn and $8.55 for soybeans in 2015. These average prices are well below breakeven prices for the marketing groups.
Farmers should first start with determining their own breakeven price and use these prices to establish target prices. Target prices are sometimes set at levels below breakeven levels due the current market situation. Target prices are goals that when met will cause the sale of a predetermined portion of the crop in the marketing plan. A farmer can use the Acceptable Crop Price Worksheet to complete crop budgets for corn and soybeans.
Decision dates should be a part of a marketing plan where a farmer is establishing a date for which to decide to establish a price for a portion of their crop. The real point here is to spread out the decisions in the March through May period which has now passed and now cash flow needs will take over. The marketing plan should incorporate a list of when cash needs to be generated.
Default dates need to be established to force action in a marketing plan so a farmer does not miss a historically good time to establish a price for their crop. Historic price information will help a farmer determine price objectives for marketing plan. Trying to determine where to start and end.
Crop Insurance can insure some revenue levels along with loan rates. In Minnesota the loan rates average $1.82 for corn and $4.84 for soybeans. These prices are well below breakeven prices.
If farmers sell crops below their breakeven price, they can reown the crop with call options, or hope that later sales will be at higher prices to bring their average above their breakeven before the last of the crop is sold.
For the last 5 years, high cash corn price $8.22 (2012) and $17.74 (2013) beans for Worthington and the lows were $2.65 (2016) for corn and $8.03 (2016) for soybeans. Today’s cash prices in Worthington were $3.16 and $9.16 for corn and soybeans.
The last USDA report was negative while the June USDA was positive, corn and soybean prices went up significantly after the June report and now after the August report have given all the increase and more in price back.
Farmers need a marketing plan with target prices and default dates to sell crop as needs and opportunities arise. Hopefully prices will rally before harvest, if not there will be losses.